The White House’s exploration of a government-backed digital dollar is raising an implicit question that has received little attention: What role does Congress have in the decision?
Federal Reserve officials, including Chairman Jerome Powell, have said the central bank wouldn’t issue a digital dollar without support from Congress, but that leaves open at least the possibility that the Fed could move forward with buy-in that falls short of legislation. And that, in turn, raises a new question: What would buy-in have to look like to satisfy the Fed?
“The definition of support is the piece that remains murky,” said Jennifer Lassiter, executive director of The Digital Dollar Project. “We know they’re looking to the administration and to Capitol Hill for some type of concurrence or guidance to move forward, but we don’t know what shape that takes.”
Congress’ role could prove decisive in a project that may profoundly change how Americans handle their financial affairs and that some see as essential to U.S. standing in the global financial system. Depending on how congressional support is expressed, it could undermine consumers’ confidence in a digital dollar, raise legal challenges that stop the project in its tracks or fail to deliver the stability the rest of the world has found in the dollar for decades.
In eight reports on digital assets released in September, the White House sidestepped the question of whether legislation is needed. The reports, done in response to President Joe Biden’s executive order in March, included two that examined potential technical designs and policy objectives of a government-backed digital dollar should it “be deemed in the national interest and pursued.”
The administration, however, declined to release a Justice Department document commissioned by the same executive order assessing whether legislation would be needed to issue a digital dollar. The administration didn’t respond to questions about why the assessment was withheld or whether it will be made public in the future.
“It’s kind of the missing piece to the puzzle in order to fully understand what the next step is,” Lassiter said in an interview.
‘Bipartisan concern’
Members of Congress on both sides of the aisle, including some of the earliest supporters of a digital dollar, say the Fed should not issue a central bank digital currency without legislation clearing Congress first.
The undisclosed Justice Department document didn’t escape the notice of members of Congress. A handful of House Republicans led by Financial Services ranking member Patrick T. McHenry, sent a letter this month to Attorney General Merrick B. Garland asking for a copy of the assessment.
“I think there’s bipartisan concern about it and an interest in better understanding these trade-offs,” McHenry, R-N.C., said in an interview. He and other committee Republicans also sent a letter to Fed Vice Chair Lael Brainard in September asking her to clarify whether legislation is needed.
Republicans, who have grown skeptical of a digital dollar because of privacy concerns, say legislation is needed and have led the charge in pressing Fed officials on the issue. Democrats have also come out in favor of legislation.
Rep. Bill Foster, D-Ill., who pushed the Fed to consider a digital dollar in 2019, said the decision will require legislation. Foster is a member of the House Financial Services Committee and chairs its Task Force on Artificial Intelligence.
“I think, ultimately, it’ll lie with Congress,” Foster said in an interview. “It’s a major decision on how we want to structure our financial system.”
‘Classic Fed speak’
The Fed leaders’ comment that congressional support would ideally be in the form of legislation hasn’t resolved outside experts’ varying views on whether the administration thinks legislation is essential or only one of several ways Congress can show support.
“The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law,” the Fed said in a January report on central bank digital currencies.
Aaron Klein, a Brookings Institution senior fellow of economic studies, said the Fed allowed itself wiggle room to move forward without legislation. Klein declined to weigh in on whether the Fed actually has the authority to issue a digital currency without legislation.
“The Fed believes it can decide whether or not it should move forward,” he said in an interview and later clarified in writing. “At one point, Powell said legislation was needed. He then changed his tune to say the Fed wouldn’t act without first consulting with Congress and having Congressional buy-in. Very different.”
Brandon Neal, chief operating officer at Euler Labs, said couching statements is how the Fed and its leaders communicate. Neal spent a decade in various positions at the Federal Reserve Bank of New York before joining Euler Labs, a company that runs a cryptocurrency lending protocol.
“It’s classic Fed speak,” Neal said in an interview. “Fed policymakers are so used to having their comments parsed word by word, literally word by word, that they naturally speak in words, using ‘preferred’ when they probably in their heart actually mean, ‘Yeah, of course, Congress has to weigh in on this.’”
Congress is the proper place for a public debate about whether the U.S. needs a central bank digital currency, Neal said, adding that he has deep misgivings about the privacy implications of a Fed-backed digital dollar.
‘Political risks’
Ridge Barker, a partner at the law firm Withers Worldwide, said an aggressive interpretation of the existing statute could be used to argue that the Fed can issue central bank digital currency without congressional authorization, but it’s unlikely to stand up in court.
“The statutory framework where we do issue money probably is not broad enough to encompass digital coin, unless somebody really wanted to take an aggressive interpretation of the statutory authority,” Barker said in an interview.
The Constitution grants Congress the power to “coin money.” Over time, Congress delegated the authority to issue coins and then bills to the Treasury Department and the Fed. The language most point to in considering whether the executive branch could issue a digital dollar without further authorization dates to a resolution Congress passed in 1933, which suspended the gold standard and gave the president authority to alter the gold content of the dollar.
The text of the resolution establishes as legal tender “all coins and currencies of the United States (including Federal Reserve notes and circulating notes of Federal Reserve banks and national banking associations).”
Supporters of the need for legislation read the list starting with “including” as the full list of potential coins and currencies. Those arguing against the need for legislation say “including” should be read as including, but not limited to, opening the door for the Fed to issue other currencies that could be accepted as legal tender.
Barker said reading the statute as potentially including a digital currency issued by the Fed is possible but would be vulnerable to legal challenges, especially with a Supreme Court that favors originalist arguments.
“It has some including language, but it’s pretty narrow. I think you really have to be pretty aggressive to say it would include something as new as a digital coin,” he said. “That would be a tough road to go down.”
There are also political considerations to keep in mind, Barker said. Even if the Fed could issue a central bank digital currency without congressional approval, it may not be worth the political cost.
“From a practical point of view, I can’t see the Federal Reserve or the Treasury doing a stablecoin or central bank depository coin without legislative authority. I think political risks and blowback are just too big,” he said. “It’s become a bit of a hot button on the Hill, and people can take pretty extreme views on it.”
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